FYI: Ill App Ct (1st Dist) Rejects Appraiser's Claim Against Lender for De-Listing Him and Notifying AMCs

The Court of Appeals of the State of Illinois, First District, recently affirmed a summary judgment ruling in favor of mortgage lender on an appraiser's claims of intentional interference with a business relationship arising from the lender barring the appraiser from working on its loans and notifying various appraisal management companies ("AMCs") of this decision.

 

In so ruling, the First District held that there was no evidence that the lender intended to interfere with the appraiser's relationships with other lenders, and no evidence that lender acted with an improper purpose.

 

A copy of the opinion is available at:  Link to Opinion

 

A real estate appraiser ("Appraiser") brought suit against a financial institution ("Financial Institution") for intentional interference with a business relationship, alleging that Financial Institution acted with malice when it (1) placed Appraiser on a list of individuals ineligible to do appraisals for Financial Institution and (2) provided the list to appraisal management companies ("AMCs").

 

The suit arose out of an appraisal conducted by Appraiser which was given to Financial Institution as part of a transfer when Financial Institution purchased a loan.

 

After obtaining its own appraisal, Financial Institution found discrepancies in the appraisal report done by Appraiser and followed its established internal procedures in conducting a review. The review eventually led to Appraiser being placed on Financial Institution's ineligible list, which was disseminated to AMCs used by Financial Institution.

 

Appraiser alleged that this caused AMCs to stop working with him and resulted in the destruction of his business. Financial institution moved for summary judgment which the trial court granted.

On appeal, Appraiser argued that the trial court erred in granting summary judgment because different inferences and conclusions could be drawn from the facts as to whether Financial Institution intended to interfere with Appraiser's business relationships and whether Financial Institution acted with an improper purpose.

 

The elements of a claim for tortious interference with prospective business advantage include: " '(1) plaintiff's reasonable expectation of entering a valid business relationship; (2) the defendant's knowledge of the plaintiff's expectancy; (3) purposeful or intentional interference by the defendant that prevents the plaintiff's legitimate expectancy from ripening into a valid business relationship; and (4) damages to the plaintiff resulting from such interference.' " Miller v. Lockport Realty Group, Inc., 377 Ill. App. 3d 369, 374 (2007) (quoting Soderlund Brothers, Inc. v. Carrier Corp., 278 Ill. App. 3d 606, 615 (1995)).

 

The trial court found that Appraiser had failed to establish the third element. "The element of 'purposeful' or 'intentional' interference refers to some impropriety committed by the defendant in interfering with the plaintiff's expectancy of entering into a business relationship with an identifiable third party." Atanus v. American Airlines, Inc., 403 Ill. App. 3d 549, 557 (2010) (citing Romanek v. Connelly, 324 Ill. App. 3d 393, 406 (2001); Dowd & Dowd Ltd. v. Gleason, 181 Ill. 2d 460, 485 (1998)).

 

A claim for intentional interference "must set forth facts which suggest that defendant acted with the purpose of injuring plaintiff's expectancies." J. Eck & Sons, Inc. v. Reuben H. Donnelley Corp., 2013 Ill. App. 3d 510, 515 (1991).

 

The First District agreed with the trial court that Financial Institution acted to protect the interest of itself and its clients, and the facts and inferences that could be reasonably drawn from those facts did not establish that Financial Institution acted improperly and with the intent to injure Appraiser's relationships with third parties.

 

The Appellate Court noted that when the report's possible deficiency came to light, Financial Institution followed its internal procedure for reviewing and investigating troublesome appraisals. This review uncovered several issues with the report, and Financial Institution later found that Appraiser's valuation was not properly supported nor was it in line with recent sales of similar homes in the vicinity.

 

It was then that Financial Institution sent its letter to Appraiser asking him to respond to the issues. The Court found that Financial Institution offered Appraiser abundant time to obtain the permission of the original loan owner and respond to the letter prior to Financial Institution's sending the report to the Value Provider Management Group ("VPM") counsel.

 

The Appellate Court further noted that Financial Institution went so far as to contact Appraiser by phone when he failed to respond to the letter, and that the VPM counsel did not consider the report until four months after the initial letter was sent. After finding that the concerns were valid and placing Appraiser on the ineligible list, Appraiser failed to appeal the decision.

 

The First District found that Financial Institution followed its established procedures in reviewing the appraisal report made by Appraiser, sending the initial letter asking for clarification as to its concerns, and determining that Appraiser was ineligible.

 

The Appellate Court noted that Financial Institution did not deviate from those procedures or treat the report any differently in an attempt to tortiously interfere with Appraiser's business relationships.

 

The First District also held that Financial Institution did not act improperly nor with an intent to interfere with Appraiser's business relationships when it disseminated the ineligible list to AMCs, with which Financial Institution had contractual relationships.

 

Appraiser argued that he met the third element as Financial Institution knew that disseminating the list would result in AMCs not retaining him for other institutions which sought to sell their mortgages to Financial Institution. However, the Appellate Court agreed with the trial court that there was no evidence that Financial Institution desired to interfere with Appraiser's business relationships and was only acting to protects its own commercial interests.

 

The Appellate Court further held that even if Financial Institution knew that AMCs would no longer retain Appraiser for other institutions, Appraiser was still required to show that Financial Institution acted improperly despite the incidental consequences. Id. The Appellate Court found there was no evidence to establish Financial Institution acted in an improper way.

Appraiser finally argued that divergent inferences could be drawn as to the motives of Financial Institution based on the circumstances surrounding its letter to the Illinois regulator ("IDFPR") and because the mortgage was paid off at the time Appraiser was found ineligible and disseminated the list. However, the Appellate Court disagreed.

 

The First District reasoned that Financial Institution sent the letter to the IDFPR after completing its full review process which had uncovered several problems with Appraiser's report.

Financial Institution stated in the letter that it was submitting same pursuant to the requirements of section 129E of the federal Truth In Lending Act ("TILA") which requires lenders to make a report to the proper agency under such circumstances. The Court found the evidence showed that Financial Institution sent the letter based on its belief that it was required to under TILA.

 

In addition, the Appellate Court found that although Financial Institution's interest in the subject mortgage ceased when the mortgage was paid, it had a continuing interest in protecting its mortgage business and obtaining valid appraisals.

 

Thus, the First District found, by not ignoring the issues it found in the report, Financial Institution was acting to protect its business interests.

 

In sum, the Appellate Court ruled that there was no evidence to support that Financial Institution acted with improper purpose of malice towards Appraiser, and that the trial court did not err in granting summary judgment.  Accordingly, it affirmed summary judgment in favor of Financial Institution.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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RE: Texas Sup Ct Vacates Default Against Mortgage Asset Trustee, Clarifies Rules for Service on Financial Fiduciaries

The Supreme Court of Texas recently set aside default judgment against a mortgage asset securitization trust after finding that its trustee had not been properly served as required by Section 17.028 of the Texas Civil Practice and Remedies Code.

 

A copy of the opinion is available at:  Link to Opinion

 

The issue on appeal arose out of the two Texas statutes which address how lawsuits can be served on financial institutions that act as fiduciaries: (1) Section 17.028 of the Texas Civil Practice and Remedies Code, which allows service of a citation on a financial institution by serving its "registered agent," and (2) Chapter 505 of the Texas Estates Code, which provides that a foreign corporate fiduciary must appoint the Secretary of State as its "agent for service of process."

 

In the underlying matter, plaintiff, a homeowner ("Homeowner") served the Secretary of State under Chapter 505 of the Texas Estates Code rather than the registered agent that the defendant ("Financial Institution") had designated under the Texas Business Organizations Code.

 

Financial Institution had not updated its Chapter 505 designation of whom the Secretary should forward process to and so did not receive the citation.

 

As a result, default judgment was rendered against Financial Institution. Financial Institution subsequently filed an equitable bill of review, but its attempts to set the judgment aside were rejected by both the trial court and court of appeals.

 

The questions addressed by the Supreme Court of Texas were whether (1) Homeowner was required to comply with section 17.028 of the Texas Civil Practice and Remedies Code; and, if so, (2) whether the Secretary of State was Financial Institution's registered agent.

 

The Supreme Court of Texas found that section 17.028 of the Texas Civil Practice and Remedies Code provides the mandatory methods of serving a financial institution. The Court also held that, for purposes of section 17.028, service on the Secretary as a foreign corporate fiduciary's "agent" under Chapter 505 of the Texas Estates Code did not constitute service on a financial institution's "registered agent."

 

Section 505.004 of the Texas Estates Code provides that the Secretary must be appointed as a foreign corporate fiduciary's agent for service of process "in an action or proceeding relating to a trust, estate, fund, or other matter within this state with respect to which the fiduciary is acting in a fiduciary capacity." TEX. EST. CODE § 505.004(a)(2).

 

The Secretary issued a certificate documenting that the citation had been sent to the person whom Financial Institution had designated as their person to receive process under Chapter 505 of the Texas Estates Code. However, the citation was returned to the Secretary indicating "Return to Sender, No Such Number, Unable to Forward."

 

Financial Institution learned about the default judgment approximately two months after it was rendered.

 

Financial Institution contended that service was improper because section 17.028 of the Texas Civil Practice and Remedies Code was the exclusive method of serving a financial institution. Homeowner argued that either Chapter 505 or section 17.028 could be given effect without contradiction.

 

The Supreme Court of Texas addressed Financial Institution's argument that a plaintiff must comply with section 17.028 of the Texas Civil Practice and Remedies Code when suing a financial institution.

 

Section 17.028(b) provides that "citation may be served on a financial institution by: (1) serving the registered agent of the financial institution; or (2) if the financial institution does not have a registered agent, serving the president or a branch manager at any [Texas] office." TEX. CIV. PRAC. & REM. CODE § 17.028(b).

 

Homeowner argued that the legislatures use of the word "may" signaled an intent that service under section 17.028 was permissive, but the Supreme Court of Texas disagreed. The Court found that "may" was used to introduce two alternative methods of service, which method used, depending on whether the institution has a registered agent. See, id.

 

The Court found the remainder of section 17.028 to confirm this interpretation. Subsection (d) provides: "[i]f citation has not been properly served as provided by this section, a financial institution may maintain an action to set aside the default judgment . . . entered against the financial institution." TEX. CIV. PRAC. & REM. CODE § 17.028(d) (emphasis added).

 

The Supreme Court of Texas found this subsection to show that the legislature intended section 17.028 as the exclusive means of service. Thus, the Court held that when the defendant was a financial institution, compliance with section 17.028 is mandatory.

The Court next addressed whether service on the Secretary of State was service on a financial institution's "registered agent" as required by section 17.028.

 

Homeowner argued that he properly served Financial Institution pursuant to section 17.028 by serving the Secretary of State because Financial Institution had appointed the Secretary as its agent for service under Chapter 505 of the Texas Estates Code.

 

Under Chapter 505, a foreign corporate fiduciary can serve in a fiduciary capacity in Texas without meeting certain requirements, if it executes and files a written instrument that is irrevocable and of indefinite duration appointing the Secretary of State "as the fiduciary's agent for service of process…in an action or proceeding relating to a trust, estate, fund or other matter within this state with respect to which the fiduciary is acting in a fiduciary capacity." TEX. EST. CODE § 505.004(a)(2). In compliance with this, Financial Institution appointed the Secretary as its "agent."

 

The Supreme Court of Texas found that the Secretary as appointed "agent" under Chapter 505 of the Texas Estates Code was not also its "registered agent" for purposes of section 17.028 of the Texas Civil Practice and Remedies Code.

 

The Court first referenced sections 5.251 and 9.004 of the Texas Business Organizations Code which it found referred to the Secretary as an "agent" but that they treated the Secretary as separate from any "registered agent" maintained by the entity. The Court further noted that Chapter 505 of the Texas Estates Code does not refer to the Secretary as a "registered agent."

 

Thus, the Supreme Court of Texas found that neither the applicable chapters of the Texas Business Organizations Code nor Chapter 505 of the Texas Estates Code identified the Secretary as a "registered" agent. In fact, the Court noted Chapters 5 and 9 distinguished between a registered agent and the Secretary as agent.

 

Finally, the Court noted that Chapter 505 of the Texas Estates Code expressly provides that the requirement that a foreign financial institution must register with the Secretary and thus appoint a registered agent was "in addition to, and not a limitation on," certain portions of the Texas Finance Code including section 201.102. Id. § 505.002(b).

 

In addition, the Court noted section 201.102 required out-of-state financial institutions to register with the Secretary "notwithstanding a provision . . . that purports to limit or prohibit its applicability to financial institutions." TEX. FIN. CODE § 201.102.

 

Thus, the Supreme Court of Texas found that Financial Institution was not properly served and the default judgment must be set aside. The Court reversed the judgment, rendered summary judgment granting the bill of review, and remanded for further proceedings on the merits of the underlying lawsuit.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 11th Cir Holds CAFA Does Not Allow Appeals from Sua Sponte Remand Orders

The U.S. Court of Appeals for the Eleventh Circuit recently held that it did not have jurisdiction to consider a defendant's motion for leave to appeal in a case that was previously removed to federal court pursuant to the federal Class Action Fairness Act ("CAFA") after the federal trial court sua sponte remanded the case back to state court.

 

A copy of the opinion is available at:  Link to Opinion

 

The case came before the Eleventh Circuit on a petition for permission to appeal. A group of mobile homeowners and their homeowner's association ("Owners") brought suit against numerous defendants in Florida state court alleging violations of the Florida Antitrust Act and the federal Americans with Disabilities Act (ADA). The suit was framed as a "representative action" filed pursuant to Florida Rule of Civil Procedure 1.222.

 

The defendants removed the case to federal court based on federal question relating to the ADA claim and also under the federal Class Action Fairness Act ("CAFA") which allows removal of certain class actions to federal court. 

 

As you may recall, under CAFA, a "class action" is defined as "any action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action." 28 U.S.C. §§ 1453(b), 1332(d)(1)(B).

 

Following removal, Owners filed an amended complaint which omitted the ADA claim and added additional state law claims. The trial court then sua sponte remanded the case to state court finding that federal-question jurisdiction no longer existed because the amended complaint only asserted state law claims and a claim brought in a representative capacity under Florida Rule of Civil Procedure 1.222 "is not a class action, as the term is understood for CAFA jurisdiction" so CAFA did not provide jurisdiction.

 

Defendants filed permission for leave to appeal.  However, the Eleventh Circuit found it did not have jurisdiction to consider the appeal.

 

The Court noted that as a general rule, it cannot review a trial court's decision to remand based on a lack of subject-matter jurisdiction. See U.S.C. § 1447(d); Hunter v. City of Montgomery, 859 F.3d 1329, 1333 (11th Cir. 2017) (citing Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S. 336, 345–46 (1976)).

 

However, an exception exists when the appeal is "from an order of a [federal trial} court granting or denying a motion to remand a class action to the State court from which it was removed." 28 U.S.C. § 1453(c)(1).

 

As neither party filed a motion to remand, the Court set out to decide whether the phrase "an order of a [federal trial] court granting or denying a motion to remand a class action" covered the court's sua sponte remand order.

 

The Eleventh Circuit held that the text of § 1453(c)(1) was best interpreted not to include a federal trial court's decision to remand sua sponte.

 

The Court found that on a review of several legal dictionaries and ordinary legal parlance, a "motion" is a request or an application made by a party. The Court further concluded that when a court sua sponte orders a remand, it is not "granting" its own "motion" within the meaning of § 1453(c)(1).

 

While the dissent argued that it was Congress's "clear intention" to include sua sponte remands, the Eleventh Circuit held that "[i]t [was] the text's meaning, and not the content of anyone's expectations or intentions, that bind [them] as law." Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 398 (2012) (quoting Laurence H. Tribe, "Comment," in Antonin Scalia, A Matter of Interpretation: Federal Courts and the Law 65, 66 (1997)).

 

The dissent further argued that the result reached by the majority was an absurd result. Although the majority agreed that the result may have been odd, it continued that "[s]omething that 'may seem odd… is not absurd.'" Scalia & Garner, Reading Law, at 237 (ellipses in original) (quoting Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 565 (2005)).

 

The majority went on to quote Justice Story who explained that the absurdity exception to the plain meaning rule only governs where "applying the provision of the case would be so monstrous, that all mankind would, without hesitation, unite in rejecting the application." 1 Joseph Story, Commentaries on the Constitution of the United States § 427, at 303 (2d ed. 1858). The Court found that this case did not meet the "monstrous[ness]" threshold.

 

Because remand was not ordered on the motion of a party, the Eleventh Circuit held that the § 1493(c)(1) exception did not apply.

 

Therefore, the Eleventh Circuit denied permission to appeal as it lacked jurisdiction to review the trial court's sua sponte remand order.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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